Project Work Mba Finance 2012 d. Gopi

Introduction to Break-even Analysis:
The study of cost volume profit analysis is often referred to as “break even analysis and two term are used interchangeable by many. This is so because break-even analysis the most widely know form of cost volume profit analysis the term break-even analysis used into senses — narrow senses and broad senses in its broad senses breakeven analysis refers to the study of relationship between cost volume and profit at different level of sales or production. In its narrow senses it refer to a techniques of determining level of operation where as the revenue equal total expenses i.e. point of no profit no loss. DEFINITION: “The break-even point may be defined as the point of sales volumes at which total revenue is equal to total cost it is a point of no profit no loss. At this point, contribution i.e. sales mines marginal cost, equal the fixed cost and hence this point is often called as “ Critical Point” or equilibrium point or “Balancing Point” it is called Break-Even Analysis.

OBJECTIVES OF THE STUDY:
1. To study to Break-even Analysis of the organization 2. To study to monthly and Annually reports of the organization 3. To examine the organization position of the APGENCO. 4. To suggest appropriate requirement of the break-even analysis 5. To examine the availability of annual funds as and when they are need 6. To familiarize the organization activities in any month and annual year increase or decrease profit & loss.

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NEED FOR BREAK-EVEN ANALYSIS:
The need for Break-even Analysis cannot be over emphasized. It may be added here that CVP analysis is also popularly, although not very correctly, designated as “Break-even Analysis”. The difference between the two terms is very narrow. CVP analysis includes the entire gamest of profit planning. While break-even analysis is one of the techniques used in this process. However, as stated above, the technique of break-even analysis is so popular for studying CVP Analysis that the two terms are used as synonymous terms. For the purposes of this study, we have also not made any distinction between these two terms. In order to understand the concept of break-even analysis, it will be useful to know about certain basic terms.

RESEARCH METHODOLOGY
Research methodology is a way to system ethically so we the Research problem while deciding about the method of data collection to be used for the 3rd day the researcher should keep in mind two types of data.  Primary Data  Secondary Data Primary Data: The primary data are those, which collected for the first time and thus happen to be in original character. It is information collected directly with out any reference in the study it was mainly with concerned officer and staff, either individual or collectively some of information had been verified supplemented conducting personal with personal observation.

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Secondary Data: The secondary data on the other hand are those which have already been collected by some one else and which already have been passed through the statistical process secondary data means that are already available i.e. hey refer to the data analyzed by someone else when the re searcher utilizes secondary data them he has to look into varies sources in this case it certainly contented with the problems that are usually associated with the collection of original data, secondary data may either be published or unpublished data these may be available in trade journals, public records reports, prepared Indies fields.

LIMITATIONS OF THE STUDY
The study has been conducted in a systematic and comprehensive way so as to make the project work an unable one. However, the topic under my study may not be free from limitations due to the following factors  The major limitation of the project under study was time. Since it was to be completed within a short period of time, which is not sufficient to undertake a comprehensive study.  Since the financial matters are sensitive in nature the same could not acquired easily.  The study is concerned to only the five years of APGENCO

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INTRODUCTION TO KTPS
The electric power industry provides the production and delivery of electric energy, often known as power, or electricity, in sufficient quantities to areas that need electricity through a grid connection. The grid distributes electrical energy to customers. Electric power is generated by central power stations or by distributed generation. Many households and businesses need access to electricity, especially in developed nations, the demand being scarcer in developing nations. Demand for electricity is derived from the requirement for electricity in order to operate domestic appliances, office equipment, industrial machinery and provide sufficient energy for both domestic and commercial lighting, heating, cooking and industrial processes. Because of this aspect of the industry, it is viewed as a public utility as infrastructure.

Energy is required for everything that we do, and it is the next important thing apart from the food upon which the lives of nations depend. Lack of power could cause economies to cripple. The flourishing power generation industry is considered to be a sign of prosperity for any nation. Energy comes in various forms but electrical energy is the most convenient form of energy since it can be transported with ease, generated in a number of different ways, and can be converted into mechanical work or heat energy as and when required. In this article we will learn about a few of the most commonly used methods of generating electrical energy.

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THE POWER PLANT:
Power or energy is generated in a power plant which is the place where power is generated from a given source. Actually the term “generated” in the previous sentence is a misnomer since energy cannot be created or destroyed but merely changed from one form to the other. More correctly, a power plant can be said to be a place where electrical energy is obtained by converting some other form of energy. The type of energy converted depends on what type of power plant is being considered. In the industrial use of the word, the term power plant also refers to any arrangement where power is generated. For example the main engine of a ship or an airplane for that matter.

TYPES OF ENERGY SOURCES:
Oil is the world’s favorite energy source which comprises 38% to the total energy production closely followed by coal (26%) and gas (23%). Both nuclear and hydroelectric energy sources contribute equally at 6% each with the remaining 1% coming from solar, wind, wood, wave, tidal, and geothermal sources. The supply of oil has both geopolitical and strategic implications for the entire world. It is geopolitical because the large known oil reserves are in the Middle East which is a region considered to be anti-American. It was the hidden agenda in the U.S. invasion of Iraq and the toppling of a legitimate or some say illegitimate, presidency of Saddam Hussein. Iraq has the 2 nd largest known oil reserves in the world after Saudi Arabia.

Electricity diagram

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Oil was used once before as a political weapon by Arab countries when the cartel of OPEC (Organization of Petroleum Exporting Countries) was still strong then. The discovery of new and large oil fields in countries which are not members reduced OPEC’s political and economic clout on the world stage. It is also strategic militarily because it is one of the war materials a country needs to wage and win wars. Oil, like copper and aluminum, is a strategic raw material and the U.S. imports a lot of oil not for its consumption but for stockpiling in underground salt mines in Utah and Nevada. These reserves from its strategic planning to ensure supplies of critical materials in wartime. The “Strategic Petroleum Reserve” is filled up to 700 million barrels which is equal to about a month’s energy consumption by the U.S. There has been a frantic search for oil by drilling in such pristine areas as Alaska, around the Great Lakes area and continental shelf but it carries the risk of degrading the ecosystem and the environment.

Energy consumption graph Coal consumption has been increasing for the past years because of the fantastic price increases of oil in world markets. Coal is relatively cheaper compared to all other energy sources and new carbon-emission technologies allowed cleaner burning. Another reason for its comeback is its availability in the U.S. mainland and therefore it is less vulnerable to supply disruptions than oil which is mainly imported from other countries.

Water energy

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Gas is a cleaner fuel compared to either oil or coal but has its own drawbacks. One is the safe transport of gas since it is very flammable or combustible. This energy source is cooled and pressurized to make it into liquid form for easier and safer transport. The correct term for it is liquefied natural gas (LNG) or liquefied petroleum gas (LPG).

Nuclear energy Nuclear power is a significant energy source in some countries like Germany and France. Its critics always cite safety concerns because of what happened at the Chernobyl reactor. The meltdown and resulting explosion spewed clouds of radioactive material into much of Europe and is the leading cause of birth defects due to genetic mutations. There is a new nuclear reactor technology that uses ceramics for its core. Ceramics can prevent meltdowns because it has a very high tolerance for extreme heat.

Hydroelectric power energy Hydroelectric power is the alternative energy chosen by some countries who do not want nuclear plants due to safety concerns. This is a viable alternative when a country has sufficient water supplies. The largest dam for years is the Hoover Dam in the U.S. between the borders of Arizona and Nevada. Today, that distinction now belongs to the Three Gorges Dam in mainland China. When it becomes operational in 2012, it will be the largest hydroelectric power station in the world producing some 22,500 megawatts.

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The argument against building dams to produce electricity is dislocation of the people living nearby and the resulting changes to the environment. The dam made many historical monuments, archaeological sites and cultural villages now underwater and gone forever. This Chinese dam spans the Yangtze River in the Hubei province and is the largest civil works project since the construction of the Great Wall. A reason for building this giant dam is flood control along the entire Yangtze River. Estimated total cost of this project is US$25 billion when completed and it needs to generate about 1,000 terawatts in 10 years for its construction costs to be fully recovered. China has a 14-facility hydropower long-term development plan in place until 2020.

DIFFERENT TYPES OF POWER PLANTS:
Steam power plants use fuels such as petroleum, coal, or biomass are burned to heat water to create steam, the pressure of the steam spins a turbine turning the copper wire inside the generator. Geothermal power plants are steam power plants that tap into steam released from the earth. Once used the water is returned to the ground. Gas power plants use fuels that are burned to create hot gases to spin the turbine. Nuclear power plants nuclear generators use nuclear fission to turn water into steam. This drives the steam turbine, which spins a generator to produce power. A pound of highly enriched uranium can power a nuclear submarine or nuclear aircraft carrier is equal to something on the order of a million gallons of gasoline. Wind power plants use the wind to push against the turbine blades, spinning the copper wires inside the generator to create an electric current.

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Hydroelectric dams use falling (or flowing) water to spin the turbine blades. Coal plants burn coal to drive a steam engine. Coal is plentiful, but the collateral damage is extreme. Fossil fuel power plants burn oil to drive a steam engine. Burning fossil fuels is increasingly expensive, and highly polluting. Oil supplies will run very thin in the coming decades.

PERFORMANCE:
The capital-intensive power industry suffered tremendous losses due to the economic recession. Industry analysts have revealed that there was a staggering 50% decline in the number, value and capacity of new projects between the beginning of the credit crunch in Q3 2009 and Q3 2010. There is a silver lining though, as analysts believe figures for Q3 2010 have shown signs of positive growth. Going forward, it is believed the hotspots of activity will primarily be in India, China and the UK. As well as new builds, there are also significant opportunities for synergies across the global energy supply chain with industry and governments keen to invest in and adopt new technologies. In order to best capitalize on these new opportunities, major contractors and companies across the energy supply chain have begun to work together more closely, to streamline their operating and procurement procedures. India has the fifth largest electricity generation capacity in the world. The total installed capacity of India is ~150,000 MW, of which majority of generation, transmission and distribution capabilities with either public sector companies or with State Electricity Boards (SEBs). Only ~15% capacity is from the private sector, though this is now beginning to increase. Market research suggests ~65% of India’s total installed capacity is contributed by thermal power with the Western and Southern regions each accounting for ~30%. Due to unbalanced growth and rural-urban disparity, only ~40% of rural household have access to electricity versus ~80% of urban households. Key players include National Thermal Power Corporation Limited, Nuclear Power Corporation of India Limited, North

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Eastern Electric Power Corporation Limited, Power Grid Corporation of India and Tata Power.

GROWTH POTENTIAL:
The Indian power sector is experiencing a large demand-supply gap. At present, the energy shortage in the India is ~10% but there are States where the energy shortage is as high as 25%. To combat this, over 80,000 MW of new generation capacity is planned in the next five years. A corresponding investment is required in Transmission and Distribution networks. The Indian Ministry of Power has set a goal, “Mission 2012: Power for all” and released a comprehensive sector development blueprint. The main objectives, in addition to providing 100% access to power, are to provide sufficient power to achieve targeted GDP growth rate of 8%, provide reliable and good quality power and to enhance commercial viability. A huge capital investment of about US$ 200 billion is required to meet Mission 2012 targets. This has welcomed numerous global companies to establish their operations in India under the famous PPP (public-private partnership) programs. Additional massive capital investment is further required over the subsequent years with the country’s power requisite expected to touch 800,000 MW by 2031-32.

FUTURE PROSPECTS:
Due to the influx of foreign companies, and the ramping up of operations by domestic companies, the industry is experiencing a hiring spike. New graduates would be advised to seek an initial position in one of the larger companies as there will be specific training courses and more opportunities for someone starting out. Given the breadth of the power industry, it is possible to work with a range of different technologies and disciplines depending upon your preferences.

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All of the large power-generation companies are looking for graduates and apprentices in a range of disciplines. Degrees in engineering (mechanical, electrical or civil), science (physics, chemistry or mathematics) and even IT or business studies are required. In addition, work experience is a big advantage.

POWER INDUSTRY IN INDIA:
The critical role played by the power industry in the economic progress of a country has to be emphasized. A self sufficient power industry is vital for a nation to achieve economic stability.

INDIAN POWER INDUSTRY:
Before Independence The British controlled the Indian power industry firmly before Independence. The then legal and policy framework was conducive to private ownership, with not much regulation with regard to operational safety.

POST INDEPENDENCE:
Immediately after Independence, the country was faced with capacity restraint. India adopted a socialist structure for economic growth and all the major industries were controlled by public sector enterprises. By 1970's India had nationalized most of its energy assets, due to its commitment to social goals. By the late 1980's the Indian economy felt the strain of the socialist agenda followed since independence. Faced with a serious deterioration in public finance and balance of payment crisis, the Union government as part of its policy of economic liberalization allowed greater investment by private sector in the power industry.

POWER
Constitutional Position Power as a matter of legislative and executive competence, falls in the Concurrent List (List III of the Seventh Schedule to the Constitution of India).Both the Parliament and state legislatures have the rights to pass laws on the matter and any law passed by the Parliament overrides the existing state laws unless.

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 

The existing law is conserved or saved from such a repeal or A law passed by the state legislature receives acknowledgment from the President of India.

POST LIBERALIZATION:
Understanding the critical part played by the power industry, the Union government passed several laws and restructured the Power Industry to gear it up to meet the challenges posed to the Indian economy post Liberalization.

Electricity Bill 2001
Learning from the experience gained through various reform initiatives, the Indian government passed the Electricity Bill 2001.The Bill seeks to
 

Consolidate and rationalize existing laws. To address the issues of developing industry including regulation, power trading, non discriminatory open access, choice of dispensing with vertically integrated state enterprises and encouraging private enterprise.

Energy Conservation Act 2001
The Act was enacted by the Indian government to facilitate stringent steps to ensure the efficient use of energy and its conservation. A Bureau of Energy Efficiency was set up to monitor and regulate the Power Industry according to the provisions of the act.

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NON RENEWABLE ENERGY: FOSSIL FUELS:
The Industrial Revolution in Europe in the 19th century forced human's to seek alternative sources of fuel to cater to the increasing demand. Focus was shifted to fossil fuels as an alternate source of energy. Fossil fuels were formed millions of years ago. They are nothing but fossilized organic remains that after millions of years has been converted into oil, gas and coal. Because this process takes a long time, they are known as non renewable.

COAL:
It is the most easily available fossil fuel in the world. It is mostly carbon and is used as a combustion fuel, especially after the Industrial Revolution. Coal can further be divided into lignite, bituminous and anthracite. Lignite and Bituminous have lesser percentage of carbon and therefore burn faster. They are not environmentally friendly, Whereas Anthracite has about 98% carbon and therefore burns slowly and is more environmentally friendly. Coal can be found in both underground mines and open mines. Though Petroleum gained prominence through the 20th century, coal still continues to be the most used raw material for power generation.

Oil and Gas:
Oil and Gas is mostly found in underground rocks. Millions of years ago when plants and animals died, they got buried in layers of mud and sand. The earth's crust changed its shape and put immense pressure and heat on the dead plants and animals. Over a period of time, the energy in those plants and animals changed into hydrocarbon liquids and gases. They then turned into chemicals called hydrocarbons .Most of the hydrocarbons is found under the sea bed. Oil has a disastrous effect on the environment and many scientists believe the main reason for global warming. Natural gas is usually found near a source of oil. It is a mixture of light hydrocarbons. It is lighter than air and is odorless. It is therefore mixed with a chemical that gives it a strong our and thereby easy to detect in case of a leak. It is the cleanest burning fossil fuel.

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RENEWABLE ENERGY:
Because of the environmentally disastrous effect of non renewable energy, an alternate source of energy which would not pollute the environment and which can also be renewed was tapped. They are known as renewable energy. The various types of renewable energy are

SOLAR ENERGY:
It is the most easily available renewable resource. After the oil shock in 1970's many countries conducted research work to tap solar energy. It is believed in the next few years millions of consumers across the world would switch to solar energy. In India the Indian Renewable Energy Development Agency and the Ministry of Non Conventional Energy Sources are devising strategies to encourage the usage of solar energy. Solar energy can be used for cooking, heating, drying, distillation, electricity, cooling, refrigeration, cold storage etc.

HYDEL ENERGY:
Energy available in fast flowing water can be used to generate electricity. Waves occur due to the interface of the wind with surface of sea and represent a transfer of energy. This energy can be tapped for commercial purpose.

HYDRO POWER:
It is the one of the best, cheapest and cleanest source of power, though large dams could have environmental and social repercussions. In view of these problems associated with larger dams, experts have advocated the construction of smaller dams. New environmental laws to safeguard the planet from the effects of global warming have made smaller hydropower projects more viable.

WIND ENERGY:
It is the kinetic energy used for many centuries in water sports like sailing and for irrigation. It converts kinetic energy into more usable forms of power. Wind turbines help to convert the energy in the wind into mechanical energy which can be used for generating power. Since the late 1980's the viability of wind energy has gained in prominence across the globe. In India the states of Tamil Nadu and Gujarat lead in the field of wind energy.

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BIOMASS:
It is sourced from the carbonaceous waste of animals and is also the by products from timber industry, agricultural crops, raw material from forest, household waste and wood. It can be used to generate power with the same power plant that are burning fossil fuels and is very much environmentally friendly. It is being used in the western countries for applications such as combined heat and power generation. In India 90% of the rural households and 15% of the urban households use bio mass fuel.

NUCLEAR ENERGY:
Nuclear energy can be created in nuclear reactors under strict human control. The nuclear power can be generated by the fission of uranium, plutonium or thorium or the fusion of hydrogen into helium. Nowadays mostly Uranium is used for generating nuclear power. With a view to increase India's dependence on nuclear energy to offset the energy crisis in the country, the Indian government entered into an agreement with the government of USA called the 123 agreement. This agreement aims to assuage greater cooperation between the two countries in the field of nuclear technology.

FUTURE TRENDS:


According to experts the private sector would play a greater role in power generation and foreign investments would increase considerable in his sector.



The government of India’s Hydrocarbon vision 2025 gives in details the guidelines for the policies in India for the next 25 years to attract investment in exploration, production, refining and distribution of petroleum products.

INDIA POWER SECTOR:
India power sector or the power industry in India comprises of the various governmental bodies looking after the power systems in India, power generation industry and technologies in India, power supplies, power industry report showing the analysis of

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the power scenario in India, the India power requirements and shortage, the various India power supply unit and the power infrastructure in India.

MINISTRY OF POWER:
Indian power sector comes under the Ministry of Power India. Earlier known as Ministry of Energy, it comprised of separate departments for power, coal and nonconventional sources of energy. In 1992, the Ministry of Power started working independently with work areas covering planning and strategizing the Indian power projects and policies. The power management and implementation of the various power projects undertaken, formulation and amendments of the power laws in India, management of the power supply in India, monitoring of the power plants in india, power companies in India, power generation in India and other power shortage problems etc. The Ministry of Power (MoP) is coordinated by Central Electricity Authority (CEA) in all technical and economic aspects. Along with the CEA, other subsidiary organizations of the Mop are: National Thermal Power Corporation (NTPC) National Hydro Electric Corporation (NHEC) Power Finance Corporation of India (PFCI) Nuclear Power Corporation of India Limited North Eastern Electric Power Corporation (NEEPC) Rural Electrification Corporation (REC) Damodar Valley Corporation (DVC) Bhakra Beas Management Board (BBMB)

       

POWER INFRASTRUCTURE IN INDIA:
The power industry in India derives its funds and financing from the government, some private players that have entered the market recently, World Bank, public issues and other global funds. The Power Ministry India has set up Power Finance Corporation of India that looks after the financing of the power sector in India. The Power Finance

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Corporation Limited provides finance to major power projects in India for power generation and conversion, distribution and supply of power in India. Power Finance Corporation (PFC) Ltd India also looks after the installation of any new power projects as well as renovation of an existing power project India. The PFC in association with central electricity authority and the ministry of power facilitates the development in infrastructure of the power sector India. They have taken up construction of mega power projects that will answer to the power shortage in various states through power transmission through regional and national power grids.

POWER SUPPLY UNITS INDIA:
Power is derived from various sources in India. These include thermal power, hydropower or hydroelectricity, solar power, biogas energy, wind power etc. the distribution of the power generated is undertaken by Rural Electrification Corporation for electricity power supply to the rural areas, North Eastern Electric Power Corporation for electricity supply to the North East India regions and the Power Grid Corporation of India Limited for an all India supply of electrical power in India.
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Thermal Power in India is mainly generated through coal, gas and oil. India coal power forms a majority share of the source of power supply in India. The electric power in India is generated at various thermal power stations in India. The power generated at these thermal power plants is then distributed all over India through a network of powergrid at regional and national levels. The power ministry organization responsible for the thermal power management in India is the NTPC.

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Hydropower is India is one of the mega power generators in India. Various hydropower projects and hydro power plants have been set up by the ministry of power for generation of hydro power in India. Various dams and reservoirs are constructed on major rivers and the kinetic energy of the flowing water is utilized to generate hydroelectricity. The power generator here is the running water. The hydroelectric power plants and the hydro power generation companies are managed by the National Hydro Electric Power Corporation (NHPC).

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

Wind Power in India is available in plenty as India witnesses high intensity winds in various regions due to the topographical diversity in India. Efforts have been made to utilize this natural source of energy available free of cost for wind power generation. Huge wind energy farms have been set up by the government for tapping the wind energy by using gigantic windmills and them converting the kinetic energy of the wind into electricity by the use of power converters. The wind power advantages start with the very fact that a wind energy power plant does not require much infrastructure input and the raw material i.e. wind itself is available free of cost. Solar Power in India is being utilized to generate electricity on smaller scale by setting up massive solar panels and capturing the solar power. Solar power India is also being utilized by the power companies in India to generate solar energy for domestic and small industrial uses. Nuclear Power in India is generated at huge nuclear power plants and nuclear power stations in India. A nuclear power plant generates the electricity using nuclear energy. All the nuclear power plants in India are managed by the Nuclear Power Corp of India Ltd (NPCL). The electricity from all India nuclear plants is distributed by the NPCL as per the nuclear power project scheme. Biogas Production in India is still in its infancy stage. Also the number of biogas plants in India is still very low. India being the largest domestic cattle producer has plenty of biogas fuel and thus utilization of the fuel for mass biogas production by setting up more biogas plants in India would solve the power shortage problem to some extent.

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

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POWER COMPANIES IN INDIA: Many government as well as private organizations have taken up the task of power generation in India. The major Indian power companies playing prime are:
   

Bhakra Beas Management Board Enercon Systems India Essar Group GMR Group

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               

Gujarat State Petroleum Corporation Ltd Jindal Steel & Power Limited Karnataka Power Transmission Corporation Limited (KPTCL) Karnataka Renewable Energy Development Limited Konarka Magnum Power Generation Limited Nippo Batteries Reliance Energy Ltd. Shri Shakti Durgapur Projects Limited Satluj Jal Vidyut Nigam Ltd. United Power Ventral Systems Pvt. Ltd. Enron India Power Plant Celetronix Power India Caterpillar Power India

PERFORMANCE: The performances indicate of the station for the last 10 years & up to 31.12.2011 are furnished in the annexure. The performance of the station was not so satisfactory during the past decade to generic defects associated with the 110 MW units and aging of the 60 MW units commissioned in mid 60’s. A Station (4 x 60 MW): As the designed life of 25 years of 4 x 60 MW units was coming to an end refurbishment & Life extension scheme was formulated during 1994-95 and the workers of the units of JBIC, Japan to a tune of 5071.74 million yens to regain the lost capacity and extend the life of the plant for another 20 years.

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There is considerable improvement in PLF, Heat rate, and generation after completion of R & L works as shown below. PLF% Before 68.99 (97-98) 73.34 (97-98) 65.72 (97-98) 70.78 (97-98) After 83.23 (01-02) 86.5 (00-01) 89.85 (00-01) 87.14 (00-01) Heat rate KcaI/Kwh Before 3337 (97-98) 3335 (97-98) 3333 (97-98) 3344 (97-98) Generation(MU) Before After 3009 362.60 (01-02) 3018 (00-01) 3011 (00-01) 3012 (97-98) (97-98) 385.48 (97-98) 345.44 (9-98, 372.04 (97-98) After 437.44 (01-02) 454.63 (00-01) 472.26 (00-01) 458.05 (00-01)

Unit

1 2 3 4

B & C Stations (4 x 110 MW): To overcome the generic defects associated with 4 x 110 MW units and to extend their life another 20 years, refurbishment scheme for the units was formulated with 25 activities in B station and 22 activities in C station. BHEL at a total cost of 372 Crores. Refurbishment works on unit-5 were carried form 04-06-2000 to 12-05- 2001 and the unit was re-commissioned at 19.03 Hr. on achieved a maximum daily generation of 2.8983 MU on 12-08-2001 at an average load of 120.75 MW with a PLF of 100.63% Unit-6 was stopped for carrying out refurbishment works on 02-10-2001 and the unit was re-commissioned on 15/08/2002 and the unit is delivering the up-rated generation at average of 115 MW the performance test is programmed during January 2003. The refurbishment works on unit-7 & 8 will be taken up during 2003-04 since the same could not be taken up in the year 2002-03 in Hydel generation to very poor monsoon.

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ENVIRONMENT: All the 8 units were provided with electrostatic precipitators (ESPs) to meet the pollution standards of 400 mg/NM3. to existing ESPs and erection of additional parallel ESPs are being take up for units-i ,2,4,7 & 8 for unit 5 an independent ESP was erected and commissioned. Unit 6 is also under erection to bring down the emission levels. Parallel ESP was already erected for Unit-3 during 1999. Further a good green cover is being maintained in the powerhouses and colony surroundings. During the year 2001-02, 6000 seedlings were planted and in the year 200203 nearly 5000 seedlings were planted. Employment & Employee Welfare: Form the year 1996 onwards about 1200 no. of contract laborers were absorbed into regular cadres. This station is having a total of 2855 employees on its rolls. A good hospital with 32 beds and 3 qualified doctors and supporting staff and 2 ambulances gave been provided for the complex. Sports and cultural activities are being supported with adequate funds. One gym center with modern facilities is provided for the colony inmates. Records Achieved During 2001-02 KTPS/O&M/ Paloncha: KTPS-A: 1. Station achieved all time highest yearly generation of 1753.26 MU with PLF 83.39%, surpassing previous highest generation of 1697.55 MU with 80.74% during 2000-01 2. The auxiliary consumption for the 8.03% is the lowest against previous 3. 8.19% during the year 2000-01. 4. Station has achieved maximum monthly P.L.F 94.7% during march

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5. 2002 surpassing previous record of 93.68% during 2/2001. 6. Specific oil consumption of station 1 .39 ml/kwh is the lowest crossing previous record 1.59 ml/kwh during 1999-2000. KTPS-B: 1. Unit-5 has achieved generation of 696.02 MU with P.L.F 67.18% during the year surpassing previous highest generation of 618.3 MU with P.L.F 64.17% during 1998-1 999. 2. unit-5 recorded 127 MW day maximum demand after refurbishment of unit 8-82001. KTPS-C: 1. Specific oil consumption of station 3.37 mI/kwh is the lowest crossing previous lowest 3.52 during 2000-01. 2. Monthly Generation of unit-7 is 65.18 MU is the highest during 09/2001 surpassed previous highest 64.82 MU during 11/2000. KTPS Complex: KTPS Complex has achieved all time highest yearly generation of 4172.14 MU with PLF 71.09% surpassing previous highest generation of 4009.79 MU with 67.13% during 1987-88. 1. The auxiliary consumption has recorded lowest of 9.655% is the lowest against previous record of 9.87% during 2000-01. 2. The surpassing previous highest daily generation of 143.285 MU with 3. 88.84% during 2000-01. 4. Specific coal consumption has recorded 0.88 kg/kwh is the lowest against previous record of 9.87% during 1999-2000.

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ANN EXU RE: PERFORMANCE OF KTPS O&M: Financial Year Generation (MU) PLF (%) AUX. Cons (%) Availability Factor %NonAvailability to Forced outages %Non6 availability to due planned 5.67 6.40 5.77 5.14 7.25 4.99 20062007 4732.26 75.03 8.74 85.24 20072008 4787.31 75.90 8.91 85.95 20082009 5030.28 79.54 8.49 91.11 20092010 4462.11 70.75 9.19 90.93 20102011 4913.38 77.90 9.05 89.82 20112012 5057.09 80.18 9.14 91.96

1 2 3 4

5

due 2.70

7.35

3.12

3.93

2.93

3.05

7 8 9 10 11 12

3.34 cons Source: Reports of KTPS O&M

outages Loading Factor SP.Oil cons SP.coal cons GCV of coal Heat Rate %DM Water

88.02 1.06 0.77 3444 2659

88.31 1.30 0.79 3423 2731 3.78

87.29 0.94 0.82 3283 2700 3.55

77.80 1.91 0.89 3087 2766 3.24

86.73 0.91 0.86 3085 2661 3.76

87.19 0.91 0.85 3070 2633 3.85

PROFILE OF INDUSTRY

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In this world we cannot imagine our life without electricity supply. Electricity supply places a vital role now days. Electricity is the basic need after air, water and food. Per capita consumption of electricity become one of the important measurement to know the standard of lines of country. The power generation in India in last 20 years has increased approximately 5 to 6 times. People are becoming more and more dependent on comforts provided by gadgets and machines run on electrical power. The economical status and caliber of the country may be estimated on the amount of electrical energy the there are consuming or generating. Energy as become synonymous with progress. The energy is considering a basis input for any country for keeping the wheels of the economy moving. The increase of power potential of a nation is considered most important among all. As per law of conservation energy “Energy neither be created nor destroyed and only be exchanged form one from to another.” The per capita consumption in 1947 was only 12KWH. Which gradually increased to 97KHZ. The level of consumption is till being low compared to other countries and world wide average consumption is 1000 KW/capita. Types of Power and Power Generating Stations: Electricity is generated using conventional and non-conventional sources of energy. The examples for non-conventional type are tidal and wind power generations. a. The generating stations, which use solid fuels, are called as Thermal Power Stations, b. The stations using liquid fuels are called Diesel Power Stations. c. The stations, which use nuclear Fissions, are called Nuclear Power or Atomic Power Stations. d. The stations, which use water as a potential source of energy in generating power, are called hydroelectric stations.

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In addition to the above power can be generated using solar-heat, terrestrial heat, wind power, and Tidal power. India has made a lot of progress in power Generation since form the date of installation. The major contribution of electricity in India is coming form Thermal Power Stations. 1. Thermal Power Stations: These stations are one of the major power stations. Out of total power developed in India 50% of power is thermal. The design of power stations consists of following steps. 1. Selection of Site. 2. Capacity of Power Stations. 3. Selection of Boiler and its Auxiliaries. 4. Selection of Turbine. 5. Selection of condensing units. 6. Design of cooling system. 7. Selection of Electrical Generator. 8. Design of control and Instrumentation. Thermal power stations comprises 3 main parts namely Boiler, Turbine, Generator. In these power stations they employ stem turbines to run alternations. The steam is admitted into turbine where the mechanical energy of the steam is converted into electrical energy by rotating the turbine. Due to hs mechanical energy is converted to electrical energy. They are different types of fuels for it. Solid fuel like Bituminous coal, brown coal peat. The liquid fuels are fuel oil, crude oil, petrol, paraffin oil, the overall efficiency of Thermal Station wise and depends on plant load factors.

2. Diesel Power Stations:

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Diesel Power Stations are prime movers, which obtain energy from liquid fuel called Diesel oil, and converts energy into mechanical work. An alternator or D.C converts mechanical energy. Diesel engine is major components of Diesel Power Stations the engine obtains its power from business of fuel with in engine cylinder. Out of total installed capacity of 6,288.33 MW. As per records of 1964 Diesel Power Stations constitute only 5.1% but in 17 years its made a great progress by increasing its installed by four times. 3. Hydro Electric Power Station: Hydroelectric power stations convert the energy stored in water into electric power by use of water turbines coupled with generating the potential energy and kinetic energy of water is transferred into mechanical energy and then to electrical energy. Out of the total installed capacity and power generated in India 52.03% s Hydro only. Installed capacity of Hydro electric power station is quite high it of the 96 power stations 5 have generated capacity then 10 MW, and average load factor of 38.8%. These stations are built at where sufficient quantity of water is at responsible head. 4. Nuclear Power Stations: The development of Nuclear Energy was started by Blackett who was first to brak nitrogen atom. The present development is an out come of his discovery in this ever increasing demand for electrical energy, knowledge of utilization of nuclear fuel for power plants has taken higher importance. It is highly concentrated form of heat energy. Its importance is increasing because power obtained form such station will be so cheap. Nuclear reactor is increasing because power obtained from such stations will be so cheap. Nuclear reactor is used as the source of heat. The nuclear heat produced by splitting of nuclear is called nuclear fission heats some fluid which is used to heat the lead water heater to from steam. The materials, which undergo fission, are uranium, thorium and plutonium and alloys used sodium potassium.

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Is has been proposed that India would produce 1000 MW of atomic power in few years 400 MW will be setup in Ranapratap sagar in Rajasthan while 200MW will be at Madras the expected cost of power is 5ps per unit. 1. AP Power Generation is company incorporated on 29th Dec. 1998 2. AP Power Generation companies business operations as a commercial entity effected 1st Feb. 1999. 3. Its prime activity is generation of power in the state of Andhra Pradesh. Installed Capacity as on Date 1st Feb. 1999 Thermal Hydra Wind Total 2962.5 MW 3282.2 MW 2.0 MW 6246.7 MW

12.47% of total installed is in Andhra Pradesh. INSTALLED CAPACITY AS ON DATE:

Thermal Hydro Wind

5095.5MW 3829.4MW 2.0MW

-------------------------------------------------------------------------------Total 8924.9MW

-------------------------------------------------------------------------------Location of Thermal Stations: 27

Location

Production in MW

State

Ramagundam TPS RTTP Dr.NT TPS KTPS (O & M) KTPS V&VI Stage KTPP-I

62.5 MW 1050 MW 1760 MW 720 MW 1000 MW 500 MW

Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh Andhra Pradesh

Records Achieved: The following are the all time high records achieved in the KTPS complex. KTPS A Station: The station has achieved an all time record generation of 1697.55 MU surpassing the previous highest of 1615.57 for 1999-2000.  The maximum demand touched 245 MW on 21.01.01 at 10.00 Hrs.  The day generation of 5.81 MU on 08.02.2001 is the highest since commissioning.  The unit No. 3 has achieved 472.26 MU crossing the previous record of 418.16 MU of 1999-2000.  The unit No. 4 has achieved 458.05 MU crossing the previous record of 418.91 MU during 1986-87.

Year

Cash Award Rs. In

Economic

Shield

Remarks

Lakhs productivity Operation

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Award 1998-99 1999 1999-00 2000 2000-0 1 15 6.68 6.49 Productivity Award Qualified for 5.18 6.57 Productivity Award Productivity Award

new the scheme 2001 2001-02 2002 15 12.5 12.5 Productivity Award --- DO ---- DO ---- DO --

PRINCIPLE OF OPERATION AT KTPS Any power generation unit consists of a De-mineralization plant, Coal Handling Plant, Boiler, Turbine, Generator and the auxiliaries concerned.

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For any generation unit, a D.M Plant is a must. Because, a thermal power plant generates power by accelerating steam into turbines. Thus required steam is produced from D.M Water that in turn is produced in a D.M Plant. Coal as a fuel may be replace with natural gas, nuclear fuel, ethanol or naphtha. But the essentiality of steam remains unchanged. The power generation process begins with filling up of hot well, deaerator, boiler drum and water walls with hydrazine water. The furnace the boiler is lighted up with furnace oil and subsequently with pulverized coal. Slowly the temperature and pressure of steam is built up. When the steam temperature is 540 C, the pressure is 136 KSC, the main steam, is impinged into high-pressure turbine. The latent heat of steam is converted into mechanical energy in the HP-Turbine, while steam expands to a pressure of 35 KSC and a temp of 340 degree C The steam from HP-Turbine, a cold re-heat steam, is re-cycled into a repeater, wherein, the steam is again heated to 540 degree C and 136 KSC pressure and fed into medium pressure turbine and low pressure turbine. The mechanical energy thus produced is transmitted to turbine rotor, which is aligned to a generator. The generator converts the mechanical energy into electrical energy, which is transmitted to grid system through a systematic power transmission system. The auxiliary systems involved in power generation and their functions are as described below. 1. D.M Plant: It fulfils all the requirements of D.M Water. 2. Ash Plant: It is involved in the disposal of ash produced during the combustion of coal. 3. Coal Plant: It receives coal, stores it and feeds coal to respective units as per the requirements. 4. Coal mills: The coal mills pulverize coal to a size of new microns to facilitate proper combustion. 5. Forced draft Fan: It draws atmospheric air needed for combustion of coal.

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6. Induced draft fan: It draws the hot gases from the furnace. 7. Primary air fan: It is used to pre-heat atmospheric air. 8. Vapour fan: It sucks the P.C Coal and feeds it into furnace along with pre-heated air for combustion. 9. Electro-static precipitator: It precipitates the ash particles form the flue gas and thus reduces the hazardous effects of air pollution. 10. Cooling Tower: It acts as a conservator of cooling water through the re-cycling of cooling water used for cooling turbine steam. The principle of power generation at KTPS could be depicted simply as below. D.M Plant BOILER TURBINE GENERATOR

D.M Water ENERGY

STEAM

ESP

Che mical Waste I.D.FAN

Re- Cycled Steam

GRID CHIMNEY Ash Slurry ASH POND

DESCRIPTION OF BREAK-EVEN ANALYSIS
Break-even Analysis:

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Break-even analysis is the most widely known form of the CVP analysis. Breakeven analysis is concerned with the study of revenues and costs in relation to volume of sates and particularly, the determination of the break-even volume of sales (i.e. sales volume where revenue becomes exactly equal to the total costs giving neither a profit a profit nor any loss). It indicates the level of sales at which costs and revenues are in equilibrium. The equilibrium point is commonly known as the break-even point. The break-even point may be defined as that point of sales volume at which total revenue is equal to total costs. It is a no-profit no-loss pint. A quantity of special interest form the basic C.V.P equation is the break-even pint (BEP), defined as the level of output at which the contribution margin just covers the fixed costs, that is the output level at which profits are zero. Determination of the Break-even Point There are two approaches that can be used to compute me break-even pint: 1. The Mathematical Approach 2. The Graphic Approach. Break-even Formulae: The break-even point can be computed in terms of units, or in terms of money value of sales volume or as a percentage of estimated capacity. The BEP formulate, for both in terms of units and in terms of money values of sales volume, can easily be determined from out basic C.V.P equation by setting the left hand side (profits) equal to ‘0’ and substituting BEP for X:

Profit = (P-V) X -f ------------------------(1)

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0 = (P-V) BEP -f --------------------------(2) (P-V)BEP=f --------------------------------(3) BEP = f/(P-V) ------------------------------(4) The (4) equation is referred to as the break-even equation. Example 1: Suppose the fixed costs of a factory are Rs. 20,000 per year, the variable cost is Rs. 4.00 per unit and selling price is Rs. 8.00 per unit. The break-even point would be BEP = Rs. 20,000 /(8-4) in units = 5,000 units In other words, the company would not make any loss or profit at sales volume of 5,000 units as shown below:

Sales (5,000 x Rs. 8) (-) Variable Cost@ (5,000 units x Rs. 4)

Rs. 40,000 Rs. 20,000 -------------

Contribution (-) Fixed cost

Rs. 20,000 Rs. 20,000 ------------

Net Profit

NILL -------------

It can be observed from equation (4) that is necessary for a positive break-even point to occur that the price be greater than the variable cost per unit (i.e. PV).

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Mathematically, if the price is less point in terms of negative sales volume does east; but the negative sales volume in practice is an unacceptable proposition. In case price equals variable cost per unit (S V), no break-even point can exit unless firm has zero fixed costs. Under zero fixed costs situation, every sales volume point will be a break-even point, because revenue would be exactly to total costs at any sales volume. To express the BEP in revenue rather than units sold, we multiply both sides of equation by price per unit, P and obtain. BEP = f/(P-V)------------------ (4) P(BEP) = P(f(P-V))------------ (5) BEP = f/P-V/P------------------ (6) Where BEP is the break-even point in terms of rupee sales and the quantity (PV) /P is referred to as the contribution margin ratio. Example-2 Substituting the data of example-i in equation (6), we get: BEP = 20,000/1-4/8 = 20,000/4/8 = 20,000/4 x 8 Rs. 40,000 The same answer could be obtained by multiplying the breakeven units by price (5,000 x 8 = Rs. 40,000). The advantage of this formula is that it can be used both with the per unit information and total information. This is so because the variable costs and sales revenues change in direct in direct proportion to sales volume. BEP = F/1-V/S = Fixed costs/I - Total Variable costs / total sales revenue = 20,000/i -20,000/40,000

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= 20,000/20,000/40,000 = 20,000/20,000 x 40,000 = Rs. 40,000/BEP as a Percentage of Full Capacity Full capacity means the maximum possible volume attainable by the firm with the existing fixed equipment, operating policies practices and organizing ability. Many firms are interested in computing the break-even point as a percentage of full capacity. This can be done by dividing the capacity sales by the break-even sales. For instance in example 1 if the firm is assumed to have as estimated full capacity of 10,000 units of product, its break-even point of 5,000 units is reached at 50 percent of the capacity (5,000/ 10,000). Similarly, in example 2 the break-even point as a percentage of capacity is 50 per unit (Rs. 40,000/Rs. 80,000). Break-even point as a percentage of full capacity will provide us the maximum rupee volume of sales that the plant can contribute to the fixed cost and profit. The break-even point as a percentage of full capacity can be determined directly if information as to the total marginal income or contribution is available. The formula is B/E Point (as Percentage of Capacity) = Fixed costs I Total Contribution

Example 3: Fixed Cost = Rs. 20,000 Price per unit Rs. 8/Variable Cost per unit Rs. 4/Total Sales in Units 10,000 Total Contribution = P-V x Total Units

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= Rs. 8-4 x 10,000 units = 10,000 Units = 40,000/BEP (as percentage of capacity) = Rs. 20,000 / Rs. 40,000 = 0.5 or 50% P/V Ratio or Contribution Ratio Profit/Volume (P/V) ratio is useful in establishing a relationship between the contributions (i.e. sales — variable costs) and sales value. The ratio is also called ‘Contribution/Sales’ ratio. Any increase in contribution would mean increase in profit only because fixed costs are assumed to be constant at all levels of production. Further, the relationship between safes and variable cost is constant, since variable costs a proportion to sales remain constant at various levels of production. It is really Contribution/Safes ratio (C/S ratio), which indicates the proportion of sales revenue that contributes to fixed costs and profit. This ratio expresses the relationship between contribution and sales and when multiplied by 100, it indicates the amount contribution being earned per 100; it indicates the amount contribution being earned per 100 rupees of sales. This can be computed in various ways as shown below. P/V Ratio = Contribution (Sales — Variable Costs)/Sales = Fixed Cost + Profit/Sales = Fixed Cost — Loss/Sales = Change in Contribution / Change in Sales = Change in Profit (or loss)!Change in Sales

Example 4:

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With the help of the following example, P/V ratio is computed by using by the above formula. (All Figures Rs. In Thousands)

Sales Period I Period II 20 30

Profit Total Cost 2 5 18 25

Variable Cost 14 21

Fixed Cost 4 4

Differential

10

3

7

7

-

Or incremental Sales, cost and profit

1. (70% variable cost i.e. 7/10) 1. Sales-Variable cost / Sales 2. Fixed Cost + Profit/Sales = 20-14/20 = 6/20 x 100 =30% = 4+2/20 = 6/20 x 100 = 30%

3. Change in Contribution / Change in Sales = 10-7/10 = 3/10 x 100 = 30% 4. Change in Profits/ Change in Sales 3/10 = 3/10 x 100 = 30%

Improvement in P/V Ratio

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P/V ratio is a function of function of contribution to sales. Improvement of this ratio means widening the gap between the sales and variable costs. This can be achieved through. 1. Increasing the Selling Prices, 2. Reducing the Variable Costs, 3. Change the sales-mix so that high contribution earning products are sold more in preference to products having lower P/V Ratio. P/V Ratio being a function of contribution to sales, reduction in fixed costs or increase in the volume of business does not affect the P/V Ratio. Uses of Profit/Volume Ratio The P/V Ratio may be applied in a variety of business situations. 1. To determine the Break-even point and profit (Margin of Safety x P/V Ratio) 2. To determine the variable cost of any volume of sales by back calculation method i.e. by deducting P/V Ratio form sales taken at 100% 3. To ascertain profit at any volume of sales 4. (Volume x P/V Ratio = Amount of Contribution — Fixed Cost = Profit/Loss) 5. To calculate sales volume required earning a desired amount of profit. 6. To make alignment of loss priced business to normal price business. 7. To effect price reduction in times of severe competition and short-run trading difficulties. 8. To measure the effect on profit due to changes in volume.

Break-Even Chart:

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The break-even point also is computed graphically. A break-even chat provides a pictorial view of the relationship between costs, volume and profit. Breakeven chart is a chat that shows the profitability or otherwise of an undertaking at various levels of activity and as a result indicates the point at which neither profit is made nor loss is incurred. The chart is an important aid in profit planning exercises. It highlights the impact of fixed cost on the operations of an undertaking. The relationship between fixed costs and profits at varying volumes may exert a powerful influence on selling price decisions and profit policies. Break-even chat depicts, amongst. Other things, the break-even point, margin of safety and angle of incidence. Assumptions for construction of Break-even Chat:. 1. Fixed cost will not change with respect to a defined period of time. 2. Variable costs viz, material, wage costs and variable expenses like power and fuel, consumables etc. will not undergo any upward or downward revision or change within the defined period of time. 3. Semi-fixed or semi-Variable costs can be segregated precisely into a) Fixed and b) Variable element. 4. Selling price of products will remain stabilized within the defined period of time. 5. Plant will operate at a pre-determined efficiency level. 6. There will not be any change in the product line or in the “manufacturing process or distribution channels. 7. Whatever quantities are produced will be sold and there will not be any opening or closing stock. In other words, there will be no effect on account of opening or closing stock i.e. same quantity or same value in opening and closing will mutually cannel each other. 8. Finally, product-mix assumed for construction of break-even chart in the case of multi-product factory shall not undergo any change. To clarify, if the ratio of sales

39

is assumed to be A-45%, B-35% and C-20% this relationship between the products will be maintained in actual operation too. The following steps are involved in constructing the break-even chart. 1. Sales volume is poltted on horizontal axis. Sales volume may be expressed in terms of rupees, units or as a percentage of capacity. Equal distances are cut along the horizontal line to show sales volume at different activity levels. 2. Vertical axis is used to represent revenue and fixed and variable costs. The vertical line is also spaced in equal parts. A similar vertical line may be drawn on light of the chart to complete the square. 3. The fixed cost line, parallel to the horizontal axis, can be drawn through the fixed cost point. 4. The total sales and total costs fine can be drawn by marking buget levels on the right side vertical line. To draw total sales line, the zero- sales point should be connected with the sales budget point on the right hand vertical line. Similarly, total costs line can be drawn by connecting fixed costs point with the total costs budget point on the right hand vertical line. 5. If the vertical and horizontal line is space equally with the same distances, the sales line will connect the opposite corners of the graph at 45 degrees. The point of intersection between the sales and the total cost lines is the break-even point. The Break-even charts are drawn m two ways with the following data;

Example 5: Output & Sales 10,000 20,000 30,000 40,000 50,000

40

(In units) Sales value (@Rs. 5 Per units) Variable Cost (@Rs. 3 per units) Fixed Cost 60,000 60,000 60,000 60,000 60,000 30,000 60,000 90,000 1, 20,000 1, 50,000 50,000 1, 00,000 1, 50,000 2, 00,000 2, 50,000

X axis the horizontal line represents the ouput or capacity, and Y-axis — the vertical line represents sales and costs.

Production (in thousand units)

41

The break-even point is at 25,000 units corresponding to sales value of Rs. 1,50,000 i.e. at 60% capacity utilization and the margin of safety is 20,000 units (50,000 — 30,000) valued at Rs. 1,00,000 representing 40% of total sales value. In this presentation fixed cost line has been placed above the variable cost line to now more clearly that below the break-even point fixed costs are not being recovered. Margin of Safety: This is the amount by which the current volume exceeds the break- even volume. In other words the difference between the break-even sales and the actual sales is known as the margin of safety. Since all fixed costs are recovered at the break-even point, only variable costs will be incurred for any output and sale beyond this point. Therefore, additional sales value minus variable costs equals contribution and contribution is equal to profit in other words. Margin of safety x P/V Ratio = Profit. The margin of safety represents the amount by which firms sales can decrease without leading to a loss. In other words, it is a cushion available to the firm and can be taken as a measure of strength of a business. If the gap I s large, it indicates that the business is enjoying a sizeable share of the market and even if there is a fall in demand the business would still be earning profits. On the contrary with a shorter margin of safety the business is highly vulnerable and a small drop in sales can cause a violent fluctuation in profit. The margin of safety can be determined as follows: Margin of Safety Ratio = Budgeted Sales — BEP Sales I Budgeted Sales Ex:- Budgeted Sales Rs. 2,50,000/BEP Sales Rs. 1,50,000/M/S Ratio = 2,50,000— 1,50,000/2,50,000 = 1,00,00012,50,000 = .40 or 40%. The means, the firms’ sales can drop by as much as Rs. 1,00,000 form its budgeted level before it has to worry about a loss for the year.

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Angle of Incidence: The angle formed at the break-even point by the intersection of the sales line and the actual cost line is called the angle of incidence (see break- even chart). The angle is dependent upon the incidence of cost on revenue and serves as recognizing the limitation as they are, it would not be advisable to use the Break-even chart solely for the purpose of measuring profitability of business at different levels of output. However, with the clear knowledge and insight of the variable factors operating in the business the chart can be considered as a fair picture of the present position and possible trends form which many important conclusions may be drawn.

Check your Progress2: XYZ Co., is engaged in pulishing books and is taking a services and careful look at a new manuscript on cost management systems. Quick estimates show that the variable costs per book will be Rs. 20.40 and the total fixed costs will be Rs. 1 ,80,000. The company plans to market the books whole at Rs. 38.40 per copy. Using the above information Compute: 1. The number of copies of the book that are required to be sold to be able to earn a profit of Rs. 36,000. 2. Assuming that 21,000 copies of the book can be sold, find the selling price that the company must to earn a profit of Rs. 80,400. 3. Assuming that fixed costs are cut to Rs. 1,50,000, determine the number of copies that must be sold to cam a target profit of Rs. 57,000. Uses of Brake-Even Analysis As already noted, the break-even analysis provides a microscopic picture of the profit structure of a business enterprise. It identifies the areas of economic strength and 43

weakness of the firm, with clear emphasis on certain leverages that can be used to enhance its profitability. The usefulness of break-even analysis as a managerial tool be discussed as follows. 1. Determining Safety Margin: The break-even chart enables the management to ascertain the profit generated at the various levels of sales. But while deciding upon of the volume at which the firm would operate, demand the management should consider the ‘Safety Margin’ vis-à-vis the budgeted sales. The safety margin refers to the extent to which the firm can an indication of the amount of profits being earned- if angle is large, high profit situation and if small, it gives an indication that profit is being earned under difficult trading conditions. The size of the angle show the rate of profit earned after breaking even between profit and loss a large angle will mean a high rate of profit accruing after the point. Limitations of Break-even Charts 1. Selling price may not be constant and consequently, the sales value may not always move in direct proportion to output, higher volume of sales may be achieved at reduced prices. 2. Variable cost per unit may change with the change in output. 3. Fixed cost may change after a certain level of output. 4. Level of efficiency may vary after a certain activity level. 5. With the increased level of output, compositions of productmix not follow the similar pattern as before. Afford a decline in sales before it encounters losses. This point is illustrated with the help of an example. Example: Sales 40,000 units

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BEP 25,000 units Safety Margin = Sales — BEP Sales / Sales = 40,000—25,000 / 40,000 = 15,000/ 4,000 37.5% This implies that firm has a margin of 37.5% in the current level of sales. In other words, the firm incurs losses only when its sales decline by more than 37.5 per unit. 1. Determination of Sales Volume to Earn the Desired Profit: Break- even analysis may be conveniently used to determine the volume of sales required to achieve desired profit. The formula used for determining the Sales Volume required is. Required Sales Volume = Fixed Cost + Desired Profit / Contribution per unit or FC+P/P/V Ratio.

Example: Fixed cost Rs. 1 0,000/- price Rs. 8; Variable Cost Rs. 4; if the desired profit is Rs. 14,000/-, the target sales volume would be calculated as follow. = Rs. 10,000 + Rs. 14,000 / Rs. 8-4 = Rs. 24,000! Rs. 4 = 6,000 Units. 2. Change in price: Most often the management is faced with a problem whether or not reduce or increase of its product. Before settling this question the management will have to sort out the number of ticklish points, in terms of their implications for the firms. As already seen, it is true that any change in the sale price of products will have some effect, on total sales volume and profits. If the price, for instance, is reduced the sales will have to go up in order to maintain at least the previous level of profits. If, on the other hand, the prices is increased, sales should not fall below the previous level to maintain at least the previous level of profits. In this context the break-even analysis comes handy for the management in taking a decision relating to price changes. This is however subject to assumption that the present conditions will continue. 45

Mathematically the new volume of sales required to maintain the previous level of profit, given a reduction in price can be expressed as follows. Qn FC +P/SPnVC Where Qn = New volume of sales FC = Fixed Cost. P = Profit. SPn = New Selling Price VC = Variable Cost per unit (n denotes new)

Example: Continuing with the previous example, if we propose a reduction of 10 percent in price (form Rs, 8/- to Rs. 7.20) the new sales volume needed £d maintain the previous profit or Rs. 14,000 would be. 10,000 + 14,000/7.20— 4.00 = 24,000/3.20 7,500 units This would mean an increase of 1,500 units or 25 percent in sales. The management can easily decide whether this increase if feasible or not. Alternatively, if a price increase is considered the question to be examined is by how much can sales volume can decline before it wipes out the favorable effect of this price increases. Example: Continuing with the above example, if an increase in price by 12 Y2 percent (i.e. to 9.00) is proposed, then the volume of sales required to maintain the old level of profits would be arrived at in the following manner.

46

Qn = 10,000 + 14,000/9-4 = 24,000/5 = 4,800 units. In other words, if the decline in sales due to an increase in price is less than 1200 units or 20 percent. It would be profitable to increase the price. If the decline were more than 1200 units, the proposed price increase would have negative effect on profit. 3. Change in Costs: When costs change, the selling price of the quantity produced, the volume sold and the profits tend to change. Change in costs include — I. Change in Variable Costs; and II. Change in Fixed Costs.

i) Change in Variable Costs: Any increase in the variable costs would lead to a decline in the contribution, as a result, the break even point will be shifted downwards alternatively, any decrease in variable costs would lead to a increase in Contribution resulting in the BEP moving upwards. Hence, under the conditions of changing variable costs, a decision is taken regarding the new sale price or new sales volume in order to maintain previous level of profits. Mathematically, the new sales volume can be arrived at as follows. Qn FC + P/SPn-VCn The New Selling Price will be SPn SP + (VOn —VC) Example: Continuing with our previous example, if variable costs increases form Rs. 4 to Rs. 5 per unit. a. Qn= 10,000+14,000/8-5 b. SPn = 8 + (5-4) = Rs. 9.00

47

ii) Fixed Cost Changed: If the fixed costs change either due to internal or external factors, there will be an increase in contribution and consequently the break even point will move upwards under the assumption that there is no change in sale price of product. The question is again how to find out the new sales volume or new sale price to maintain previous level of profits. This question can be settled mathematically. 1) QnQ+FCn—FC/SP-VC 2) SPnSP+FCn—FC/Q Example: M fixed cost increases form Rs. 10,000 to Rs. 15,000 a) Qn = 6,000 + 15,000 — 10,000 / 8-4 = 6,000 + 1250 =7,250 units. b) SPn = 8 + 15,000 — 10,000 I 6,000 = 8 + 5,000 I 6,000 = 8 + 0.83 = Rs. 8.83 5. Changes in Capacity: Most often the management encounters the problems of effecting an upward revision in the scale of production to meet the increased demand for its product. It is possible for the management to increase the output without any increase in the fixed cost. But beyond a particular point the fixed costs are bound to increase. Hence the management would be certainly interested in studying and understand the impact of the

48

proposed increase in output on the firms’ fixed costs and profits. The tools that come handy in studying such an impact are the break-even analysis. This will be clear form following Example: Company ABC is considering a proposal to expand the production capacity. The proposed increase is expected to increase the sales volume form Rs. 60,00,000 per year to Rs. 80,00,000 per year. Further if it decides to expand the capacity the fixed costs will go up by 5,00,000. The relevant data for the previous year are as follows. Sales Rs. 50, 00,000 Variable Cost Rs. 32,00,000 Net Profit Rs. 3,00,000 Give the above, should the management go in for the proposed expansion of the Production Capacity? There are a number of questions to be answered by the management before it decides in favor of against the proposed increase in the production Capacity of all the most important question to be answered is how does it affect the break even point? To answer this, we have to find out the BEP for the previous year and BEP after expansion given sales of Rs. 50,00,000. They can be computed as follow. i) BEP (Previous Year) = Fixed Costs I PV Ratio = 15,00,000/36% = 41,66,666. ii) BEP (after expansion given sales of = 20,00,000 / 36% Rs. 25,00,000 = 54,35,554. An analysis of the BEP I & ii would suggest that the management is right in deciding in favor of the proposed increase in capacity only if it can push its sales beyond the present level. Further in order to maintain the present level of profits (he firms has to sell a volume whose rupee value is equal at least to Rs. 63,88,888 which is about 28%

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increase in sales. So the decision whether to expand the production capacity would solely depend on the minaret’s estimate of the possible expansions in sales. 6. Decision Regarding Adding or Dropping a Product: There are many situations in business where the management feels and realize. The need for adding or abandoning a particular product. The need for adding a new product may a skin view of the management’s expectation that the new product is a money-spinner. Alternatively, the management may decide to abandon/drop an existing product since it feels that it has outlined its utility in the market. Further the management is of opinion that continuing with it any more would only bring losses.

Whenever faced with situation of dropping or adding a product, the management has to do necessary homework to know the likely impact of such a decision on the profitability of the firm, For coming to a conclusion regarding adding or dropping a product, the management cannot rely on their intuition or premonition or lunch. They have to necessarily depend on some scientific method or analysis one such analysis break-even analysis. The question now is how to use break-even analysis for measuring the impact of dropping or adding a product on the profitability. The measurement of the impact of such a decision is illustrated in the following example. XYZ Co., is engaged in the manufacture of three products. The details eating to the products are as follows. Total Fixed Cost (yearly) Rs. 3700,000 Volume of Sales (previous year) Rs. 6,00,000 Product Price per Unit (Rs.) Variable Cost Per unit %each product to to total sales

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Ceiling fans Pedestal Fans Heat Convectors

720 1200 1600

480 720 960

50 30 20

The company is considering whether or not to abandon heat convectors from the existing product-line and replace it with fancy model fans. The management is very much aware of the fact that if it takes the to decision abandon the heat convectors and replaces it with fancy model fans, its output and cost would undergo a change as follows.

The fixed cost (yearly) Rs. 3,00,000 Sales for the current year (Anticipated) Rs. 10,40,000 Product Price per Unit (Rs.) Variable Cost Per unit Ceiling fans Pedestal Fans Heat Convectors 720 1200 1700 480 720 900 % each product to to total sales 50 30 30

In order to decide whether this change worth considering the management has to compare profits before and after the proposed change, which is done as follows. Situation I: Before the change Contribution ratio of the Products. Contribution Ratio = Price — Average Variable Cost! Price x Share in Total sales. 1) For Ceiling Fans: 720—480! 720 x 50% = 0.167

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2) For Pedestal Fans: 1200— 720/1200 x 30% 0.12 3) For heat Convectors: 1600— 960/1600 x 20% = 0.08 The contribution ratio of existing product line = 0.167 + 0.12 + 0.08 = 0.367 Total Contribution = Rs. 10,00,000 x 0.367 = 3,67,000 Therefore Profit = Total Contribution — Total Fixed Costs = 3,67,000 — 3,00,00 = 67,000

Situation II: After the Change. i) Contribution ratio for ceiling fans = 720 —480) 720 x 20% 0.167 ii) Contribution Ratio for pedestal Fans = 1200—720/1200 x 20% = 0.08 iii) Contribution Ratio for the fancy model fans = 1700 — 900 /1 700 x 30% = 0.141 The contribution Ratio for the entire product line would be = 0.167 + 0.08 + 0.141 = 0.388 Total Contribution = 10,40,000 x 0.388 4,03,520 Profit = 4, 03,520 — 3, 00,000 = 1, 03,520 By comparing the results of situation II i.e. after the change with that situation I i.e. before the change, we can come to the conclusion that the management decides to drop heat convectors form the existing line of products and add fancy model fans as the company stands to gain in the form. 7. Make or Buy Decision: In addition to the above discussed situation, a situation may also arise where the management of a firm is face with the problem whether to make a product/component or to buy. The question whether to make or buy a products is to be appreciated and analyzed

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in terms of the economies associated with it i.e costs and revenues associated with each one of the two propositions. This question however, is relevant only in the context of an option available to it. Brake even analyses certainly help to resolve such a conflict the usefulness of BEP in such a situation is illustrated hereunder. A manufacturer Television sets buys a particular component of his product at Rs. 20 each. In case he makes it himself in his factory the fixed and Variable cost would be Rs. 40,000 and Rs. 10 per unit respectively. The manufacturer proceeds to decide whether to manufacture it himself or buy it from the market depending on the results that emerge form the following exercise. BEP = Fixed Cost / Purchase Price — Variable Cost = 40,000 / 20,000 = 4,000 units. The only means that it is beneficial for the manufacture to make the component himself only when his requirement of that component exceeds 4,000 units only then he will be braking-even between loss or profit otherwise it is advisable for him to buy it at Rs. 20 each form the market. LIMITATIONS OF THE STUDY: LIMITATIONS OF CVP ANALYSIS The concept of Break-even or CV.P analysis is a simple and useful concept but it is based on certain assumptions which have been discussed earlier. These assumptions limit the utility and general applicability of the break-even analysis and make it unrealistic. Therefore, the analysis should recognize these limitations and adjust the data, wherever possible, to get meaningful results. The cost-volume profit analysis suffers from the following limitations. 1. Fixed and variable Costs: All costs may be classified into fixed and variable elements. In actual practice it may be difficult to split perfectly all costs into their fixed and variable components. Some costs can be grouped under semi variable/semi fixed-category too. 53

2. Constant Fixed Costs: Fixed costs remain the same in total for all levels of activity within a certain range. In practice, fixed costs go up in a progressive manner as activity increases. 3. Constant Variable Cost per Unit: The assumption also does not stand to reason. Variable costs per unit may fluctuate because of overtime working, reductions in the price of materials when quantity discounts are negotiated, or because of an increase in the price of materials when demand outstrips supply. The efficiency of production or a change in production method has also an effect on variable costs. 4. Constant Selling Price: Selling price are constant at all levels of sales. This assumption is highly fallacious. A high level of sales may only be achieved by offering substantial discounts. 5. Common Activity Base: Since both sales and costs are being measured on the same graph, activity must represent both production and sales. In other words, stock levels do not change. This assumption is perhaps the most unrealistic, particularly in the short term. 6. Constant Product Mix: A cost-volume-profit graph may be drawn for either a single product firm, or a firm, which sells its several products at a constant ratio. Thus break-even analysis will not serve any useful purpose if there are changes in the mix of products. 7. CVP assumes that profits are a function of output ignoring the patent fact that they also equally affected by other factors such as technological change, quality of management etc.

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K.T.P.S/ O&M

Cost of Generation for the year 2011-2012

Cost of generation shown above comprises Cost of coal, cost of o il , 1 O&M and R&M costs.

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K.T.P.S/ O&M

Cost of Generation (Ps/Kwh) at sent out for the year 2011-2012

Cost of generation shown above comprises Cost of coal, cost of oil , O&M and R&M costs.

2

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The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable and Fixed Costs in the year 2011-2012. this data was analyzed in the Graphical manner below.

April 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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May, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station –C

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June, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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July, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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August ,2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – B

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September, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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October, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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November, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C

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December, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –B, Fixed cost high in Station – B

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February, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –B, Fixed cost high in Station – B

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March, 2011-2012 KTPS Variable & Fixed Costs, Station A&B&C, & Overall KTPS-

INTERPRETATION: The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable and Fixed costs high in station B low in station C.

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FINDINGS
The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable and Fixed Costs in the year 2011-2012. this data was analyzed in the Graphical manner below. The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station – C The Above Table Shows KTPS A&B&C as well as Overall KTPS Variable cost High Station –A, Fixed cost high in Station –C

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SUGGESTIONS

 The Company KTPS variable cost very high in the month of April 2011 and so the production cost is increased. Then per unit cost is also increased.  The Company KTPS is any amounts not spend on Repairs & Maintenance in the month of April 2011, so the company will try to followed same plan in every month.  The company fixation of fixed cost is increased and decreased in every month.  KTPS spend high amount on Fixed Cost is the month of September 2011.  The company uses 3 stations in A station and B station and C station grand in A station for generating power made more expenses.  The KTPS A and B, C stations as well as overall KTPS variable and fixed cost all increased as well as decreased.

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CONCLUSION
 Cost data as been colleted for each month, Break-even Charts has been drawn for each month. Analysis of Break-even charts has been carried out for each month. It is found from the analysis that the KTPS as earned profit in every month. The output each month is always greater then the break-even output.  Break-even Charts have also been drown with the sales price is increased from analysis has been done on such charts effective of increasing tariff has been noted the break-even point has shifted to lower out puts dislike in the tariff.  It is recommended to provide online computerization system which has a system facility to provide break-even output on weekly basis system will provide information i.e. break-even point turn helps in decision making at present there is no of such computerization system in KTPS. Hence, it is recommended to provide computerized system at KTPS to calculate break-even point of output regularly and to monitor it regularly.  The result has been depicted in the summary sheet the real life situation has been realized form the data & Analysis.

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BIBILIOGRAPHY
REFERRED BOOKS: 01. 02. IM PANDEY PRASANNA CHANDRA : : FINANCIAL MANAGEMENT FUNDAMENTALS OF FINANCIAL MANAGEMENT

03.

S.N.MAHESWARI

:

FINANCIAL MANAGEMENT (PRINCIPLES & PRACTICE)

04.

JOHN J. HAMPTON

:

FINANCIAL DECISION MAKING

05.

COMPANY ANNUAL REPORTS

REFERRED WEBSITES:

www.scridb.com www.studentmanagementguide.com

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